NEW YORK - Nomura Securities International Inc., which became the first major securities house to exit the mortgage underwriting business in June last year, has quietly emerged as one of the largest players in mortgage derivatives, according to Wall Street executives.

Unknown to most market participants, the proprietary trading division of Nomura has amassed a portfolio of mortgage derivatives that can range between $2 billion and $3 billion at any time, according to market observers.

Starting with its own inventory after it decided to exit the business as a dealer, Nomura's proprietary group, led by fixed-income chief William Wraith, has regularly bought mortgage derivatives in the past year, picking up the bonds at depressed prices as bad publicity surrounded the sector.

While investing heavily, rarely has the bank bought the highly volatile securities as a bet on interest rates, say people familiar with the firm's strategy. Instead, the firm subjects each bond to a rigorous analytical model and uses the futures, options, and over-the-counter swaps market to hedge most of the risk embedded in the securities. Officials at Nomura declined to comment. P.J. Johnson, a spokesman, said: "We do not comment on proprietary trading."

Nomura's trading strategy exemplifies the approach taken by almost all the large players that have emerged in the mortgage derivatives market in the past year.

As many municipalities, banks, and insurance companies have retreated from the more risky mortgage derivatives sector, the only participants to pick up the slack have been proprietary traders at Wall Street houses and a few select money managers specializing in the sub-sector.

Compiled from wire reports.

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